Mobile phone allowance: why this is a great perk for employees

The line between personal and professional life is often blurred in the modern world of work, especially when using personal phones for work. Offering a mobile phone allowance to employees is more than just a perk – it’s a move that could strategically benefit staff and employers. 

Amid the cost of living crisis, any support you can offer to staff to manage their expenses will typically be welcomed. And, if they’re expected to field work calls or send business messages from their personal phones, a monthly allowance to cover these costs can more than pay off with the goodwill it will generate.

A mobile phone allowance can be a small recurring amount, or a business pay the bill in full. Even in the latter scenario, it’s a relatively small business overhead, and one that staff would highly appreciate as part of the wider organisational culture you’re fostering.

This article delves into the process and benefits of providing a mobile phone allowance. We’ll walk you through the factors that both managers and employees should think about.

What is a mobile phone allowance?

A mobile phone allowance is a form of compensation provided by employers to their employees. It covers the costs associated with using a personal mobile phone for work-related purposes. In terms of amount, it can either cover part of or the full monthly personal phone bill.

Essentially, the allowance acknowledges that personal devices are used for job-related tasks. Though it doesn’t go as far as offering a business mobile to replace a personal phone, a mobile phone allowance aims to lessen the financial burden for employees.

There are several appeals of a mobile phone allowance for staff. First up, the money back from an employer is a welcome acknowledgement that staff would otherwise be footing the bill for calls and data for work-related matters.

The benefit also grants employees flexibility and convenience, as they can use a device of their choice, rather than being restricted to a company-provided phone. This can lead to increased job satisfaction and productivity, as employees are empowered to work in a manner that suits them best.

The feasibility of offering a mobile phone allowance depends on the size and financial health of the company, as well as the specific needs and expectations of the workforce. However, it can be a cost-effective employee benefit when compared to the alternative of providing company-owned devices to all employees.

Benefits and drawbacks of mobile phone allowances

The benefits:

For employees:

A mobile phone allowance can be a highly appreciated perk, especially for roles where using personal phones for work is commonplace, such as in public relations or sales positions. These are the advantages for employees:

• Potentially welcome perk: if your job requires frequent communication or access to work-related apps on your phone, a mobile phone allowance can be a welcome addition to your compensation package.
• Increased flexibility and convenience: with a mobile phone allowance, you have the convenience of using your own phone rather than having to juggle a personal and business device. An allowance gives some expectation of flexibility to use your phone for business communications, whether you’re at work, or out and about.
• Cuts down expense claims process: having a designated allowance for work-related phone expenses saves the employee time, compared to having to log itemised mobile expenses.

For employers:

Offering a mobile phone allowance can also bring numerous benefits to employers, making it an attractive option for retaining talent and improving workforce productivity. Here’s how:

• Low-cost benefit: compared to providing company-owned phones to all employees, offering a mobile phone allowance is relatively low cost for employers, yet it remains a competitive benefit that can help attract and retain top talent.
• Further cost savings: employers may find cost savings by choosing mobile phone allowances over providing company-owned devices, particularly through reduced expenses on repairs and maintenance. This approach eliminates the need for purchasing and maintaining hardware, as well as managing associated contracts.
• Improved communication: providing an employee with a mobile phone allowance emphasises an expectation of quicker responses to client inquiries and, potentially, extending availability to answer work-related matters outside of usual hours.

The drawbacks:

Despite the advantages, mobile phone allowances also come with some potential drawbacks for employees and employers:

• Expectation of ‘always-on’ culture: a mobile phone allowance can openly or subconsciously foster an always-on culture at your business. While fielding work calls and messages throughout the day may feel acceptable, be wary of any pressure staff may feel to do the same in the evenings or at weekends.
• Potential for misuse: if staff are only using devices for personal use, it can lead to increased costs for the employer and potential disputes over reimbursement.
• Tax implications: a monthly allowance is typically added to an employee’s taxable income. As well as paying income tax on the amount, they’ll need to pay National Insurance. Particularly high-value mobile phone allowances may be subject to tax implications, such as the benefit-in-kind tax for employees.

Benefit in kind: understanding UK tax rules

In the UK, Benefit-in-Kind (BIK) refers to any non-cash perk or benefit provided to employees by their employer, which is subject to taxation. This can include mobile phone allowances, where the value of the benefit is assessed for tax purposes, if it’s demonstrated that the entirety of the cost is covering business expenses.

That can be complex though, requiring itemised evidence to back up the ‘business only’ claim. Since you’re covering costs of a personal device, it suggests a significant element of the device usage will be non-business.

It can be simpler to add the mobile allowance to the staff member’s taxable income. For instance, this would involve adding £25 per month to their paycheck. It can still be itemised on their payroll, but they will have to pay income tax and National Insurance on this amount. 

There’s a difference, too, between the taxation rules covering mobile phone allowances (covering usage of personal phones) and those covering business mobile contracts (where staff are given business mobile phone or Sim card).

Clear communication and transparency from employers is crucial in ensuring employees understand the tax implications of their mobile phone allowance. Employers should clearly outline the criteria for tax-free allowances and any taxable elements, helping employees make informed decisions regarding their compensation package. 

Mobile phone allowance vs business mobile contracts vs mobile phone expenses

The primary differences between a mobile phone allowance, a business mobile contract, and letting staff expense for mobile costs, are as follows:

Mobile phone allowance:

With a mobile phone allowance, employees use their personal devices for work tasks, and the company provides a stipend to cover part of or all of the mobile expenses.

• Pros: employees have flexibility in choosing their preferred device and network, potentially leading to higher job satisfaction. It’s also cost-effective for employers compared to providing company-owned devices to all staff. For staff, this can be a welcome perk and a sign that their employer is conscious of the cost-of-living overheads, and of their need to use mobile phones for work purposes. It’s also a far less complex way to cover phone bills than requiring itemised expenses.
• Cons: there may be concerns regarding security and data protection when using personal devices for work. Employees are responsible for managing their own devices and expenses, which can lead to administrative burdens. Employers can’t claim back VAT on a mobile phone allowance (in the absence of itemised expense records). It’s effectively treated as earnings and therefore subject to income tax and National Insurance for the employee.

Business mobile contracts:

Employers provide company-owned mobile devices to employees, typically under a contracted plan with a mobile service provider.

• Pros: businesses cover the expense from beginning to end, purchasing the phone and contract directly. This eliminates the complexity of staff needing to claim back itemised expenses, and businesses can claim back the VAT on the handset and network costs. Company-owned devices can also offer enhanced security features and better integration with business systems.
• Cons:  it’s up to the business to manage insurance and device maintenance. For instance, if a phone is damaged or simply faulty, the business will need to arrange a replacement. Employees may have less flexibility in device choice and network options.

Mobile phone expenses

Staff use their personal phone for work, but the employer allows them to claim mobile phone expenses. This isn’t the same as offering a blanket allowance each month.

• Pros: This can feel fair for employees, who may grow resentful if they need to use their phone and data for work purposes. Businesses can claim back VAT on the expensed amounts, provided clear itemised expenses are kept.
• Cons: Itemised billing can be complex, and it requires honesty and attention to detail from staff.

Conclusion

Offering a mobile phone allowance has the potential to benefit staff and businesses. Employees can enjoy a welcome way to help cover monthly expenses, while businesses can benefit from a relatively small overhead improving staff morale. 

For both parties, it’s a far less complicex way to cover the business use of a personal phone, versus itemised expense claims. It’s typically cheaper than a full business mobile contract, too, and saves staff from juggling more than one handset.